Wednesday, June 17, 2009

Logistics Sector – Encountering Transshipment Hazard

Transshipment in logistics parlance means when goods during their voyage from port of loading to the port of discharge are unloaded from one vessel to be reloaded on a different vessel for the final movement .If there is delay in connecting the onward vessel the consignment gets delayed .Logistics sector seems to have encountered a similar hurdle due to slackening domestics as well as global demand for goods and services .The consistent growth in manufacturing , retail as well as EXIM trade had put the logistics sector in a sweet spot. Logistics has assumed a tremendous importance in the economic system today and is intertwined with the GDP growth .A slowdown in growth across all industries has made this sector encounter an arduous situation .The logistics companies have been on a major expansion spree by investing in warehouse spaces, technology etc suddenly these asset heavy organizations are forced to anchor their capital expenditure plans. As the key driving verticals telecom, automobile and IT hardware are witnessing a slump , thus the companies that would be able to leverage existing infrastructure rather than creating new ones coupled with innovative solutions would be a able to ride the tide . The slow down in GDP ,increasing oil prices ,decline in container traffic , unprecedented drop in sea freight rates , entry of new players backed with VC/PE funding have further put pressure on the margins .The focus would now be on the low asset intensive companies offering value added solutions by leveraging technology thereby creating a niche for themselves.The sector has seen PE/VC investments in following unlisted companies Om Logistics , Quick Jet Cargo , Elbee , Direct Logistics , BLR India .The listed Logistics companies like Gati ,TCI , Gateway distriparks have all underperformed in the market for the quarter ended March 31,. The instances like the international buyer Arcandor‘s application for bankruptcy in Germany would result in non payment to exporter which in turn could delay the payments of the service providers will have an impact on the sector sentiments. Even the IATA figures have not been optimistic on the air cargo traffic.

I would term this as a short term aberration and would still like to sail with this sector. According to published reports ,India logistics markets is expected to be a USD 125 billion by year 2010 .The compound annual growth rate ( CAGR ) for the next few year is expected to be 7-8% .Indian logistics cost is expected to be around 13 percent of the GDP .The key drivers are going to be enormous infrastructure spending in terms of developments of roads , rail , airports, ports network .The expected implementation of GST by April 2010 will also give a flip to the logistics Sector . The stimulus packages to revive economies would also help this sector take off.

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